Bribes, fraud an 'inevitable' part of India?

New Delhi: India Inc believes fraud is an "inevitable part" of business, according to a recent study by consulting firm KPMG.

According to India Fraud Survey 2012, 71 per cent of the companies surveyed felt fraud had become an "inevitable cost of business". With this tolerant approach towards fraud, some Indian companies had actually set aside funds, to take into account possible frauds, leakages, or thefts.

The study also showed companies were not equipped to deal with futuristic fraud, with 70 per cent acknowledging there was no effective mechanism to tackle such frauds.

The survey got responses from 293 CXOs from Indian companies, both private and public sector, and multinationals with a presence in India and a turnover of Rs 500 crore to Rs 10,000 crore.

The study said cyber crime, intellectual property fraud, including counterfeiting and piracy, and identity theft were the major concerns in coming years.

About 55 per cent of the companies surveyed had indicated that they have experienced fraud in the past two years, a substantial increase from 45 per cent in 2010, KPMG said. The report came at a time when a few high-profile frauds, such as Reebok, are under probe of the government investigating agencies.

However, about 94 per cent of the respondents felt that frauds have become more sophisticated. "India is growing fast, and people want to become richer faster. This leads to frauds, and the governance is a real challenge today," said Richard Rekhy, CEO, KPMG India.

Bribery and corruption tops the fraud chart with 83 per cent votes, followed by e-commerce and other cyber related frauds (71 per cent) and diversion/theft of funds and goods (65 per cent), the study found.

Rohit Mahajan, partner and co-head (forensic services) at KPMG in India, said, "Over the last decade, knowledge has emerged as a key organisational asset. It is only natural that fraudsters will target these assets, as they are much valuable to companies today."

Many respondents are aware of such frauds, but they have limited knowledge on how these frauds manifest themselves or how organisations could tackle them, it added. According to the survey, "vendors/agents" are most susceptible to committing fraud, followed by management employees (senior managers and above), non-management employees (managers and below), business associates and customers.

Financial services has been identified as the most vulnerable sector, followed by information and entertainment sectors.

While the enforcement action in India is not swift and decisive enough compared to other countries, India is waking up to this and has taken steps in this direction, the report said.

"The need of the hour is for organisations to realise the importance of putting effective internal control mechanisms in place, so as to manage risks. It has become imperative for companies to be vigilant and aware, and not just act when fraudulent situations arise," said Deepankar Sanwalka, head (forensic), KPMG India.

According to KPMG, the most effective way to tackle frauds is to have a whistle-blower hotline, followed by internal audits, data analytics and IT controls among others.